Validity And Enforceability Of Electronic Contracts And Electronic Signatures
A Contract is an agreement between two parties that is enforceable by law. Typically, Contracts are written on paper and signed by the parties ("Paper Contracts"). However, there is no stipulation in the Indian Contract Act, 1872 ("Contract Act") which states that a Contract should be written on paper and signed by the parties. In fact, even an oral Contract is valid so far as...
A Contract is an agreement between two parties that is enforceable by law. Typically, Contracts are written on paper and signed by the parties ("Paper Contracts"). However, there is no stipulation in the Indian Contract Act, 1872 ("Contract Act") which states that a Contract should be written on paper and signed by the parties. In fact, even an oral Contract is valid so far as it satisfies the conditions required for a valid Contract as per the Contract Act. That being so, Paper Contracts are advisable because of its enforceability and evidentiary value. In case of a dispute between the parties, Paper Contracts would come in handy as the existence and terms of the Contract could be easily proved.
This poses the question in this Digital Era, as to whether Electronic Contracts (Contracts stored in digital form in an electronic device) could replace Paper Contracts? To put it in other words, whether Electronic Contracts could have the same validity and enforceability as Paper Contracts in the eyes of law?
The relevant provisions of the Information Technology Act, 2000 ("IT Act") read with that of the Contract Act answer these questions.
As per Section 4 of the IT Act, where any law provides that information or any other matter shall be in writing or in the typewritten or printed form, then, notwithstanding anything contained in such law, such requirement shall be deemed to have been satisfied if such information or matter is–
(a) rendered or made available in an electronic form; and
(b) accessible so as to be usable for a subsequent reference.
Further, according to Section 10 A of the IT Act, wherein a Contract formation, the communication of proposals, the acceptance of proposals, the revocation of proposals and acceptances, as the case may be, are expressed in electronic form or by means of electronic records, such Contract shall not be deemed to be unenforceable solely on the ground that such electronic form or means was used for that purpose.
Observing the aforesaid provisions, The Madras High Court in Tamil Nadu Organic Private Ltd v. State Bank of India,[1], observed that "Contractual liabilities could arise by way of electronic means and that such Contracts could be enforced through law." The High Court further stated that Section 10A of the IT Act enables the use of electronic records and electronic means for the conclusion of Agreements, Contracts, and for other purposes.
Hence in view of the above, it is clear that one could validly enter into a Contract through electronic means. The next question is how one can authenticate an Electronic Contract. Paper Contracts are authenticated by the parties by putting their handwritten signature in the Contract. Likewise, as per sections 3 and 3A of the IT Act, an Electronic Contract could be authenticated by the parties by affixing their Electronic Signature on the Contract. According to Section 3A of the IT Act, Electronic Signatures here means Electronic Signatures that are approved by the Central Government and prescribed in Schedule II of the IT Act. Presently there are 2 modes of Electronic Signatures approved by the Central Government viz:
1.E-authentication Technique using Aadhaar or other e-KYC services
A person with an Aadhaar ID linked to his/her mobile number could use an online e-signature service to securely sign digital documents online. In this case, the online e-signature service integrates with an Application Service Provider (ASP) to provide users with a mobile or web app interface that they can interact with. The users then use this app interface to apply e-signatures to any digital document online by authenticating their identity using an eKYC service such as OTP (one-time passcode) provided by an e-sign service provider. The online e-signature service works with an accredited service provider to provide certificates and authentication services that comply with government guidelines.
2.E-authentication technique by using Digital Signature Certificate issued by a Certifying Authority approved by the Central Government.
In this case, a person could authenticate a digital document by using a Digital Signature Certificate obtained from a Certifying Authority approved by the Central Government. Typically, the Digital Signature Certificate is contained in a USB token with a personal PIN, one can plug in this USB token to a computer and sign the digital document using his PIN.
An Electronic Signature affixed in an Electronic Contract is alike and has the same validity as a handwritten signature put in a Paper Contract.
According to Section 5 of the IT Act, where any law provides that information or any other matter shall be authenticated by affixing the signature or any document shall be signed or bear the signature of any person, then, notwithstanding anything contained in such law, such requirement shall be deemed to have been satisfied, if such information or matter is authenticated by means of Electronic Signature affixed in such manner as may be prescribed by the Central Government.
However, in view of Section 1(4) r/w Schedule No.1 of the IT Act, a Contract for the sale or conveyance of immovable property or any interest in such property could not be executed via an Electronic Contract.
The next question is how the execution of an electronic document could be proved in a court. A three-Judge bench of the Supreme Court in Arjun Panditrao Khotkar v. Kailash Kushanrao Gorantyal and Others[2], interpreting Section 65 A and 65B of the Indian Evidence Act, 1872 (Evidence Act), has exhaustively answered this question. As laid down in para 72 of the Judgment an original electronic document could be proved in the court by the owner of a laptop computer, computer tablet or even a mobile phone where such electronic document is stored, by stepping into the witness box and proving that the concerned device, on which the original information is first stored, is owned and/or operated by him.
In cases where the above said is not possible, a printout of such electronic document may be taken and can be proved in accordance with S.65B(1), together with the requisite certificate under S.65B(4) of the Evidence Act, as laid down by another three-judge bench of the Supreme Court in Anvar P. V. v. P. K. Basheer & Ors[3]. As per the said Judgment, the certificate u/s 65 B(4) of the Evidence Act, should be signed by a person occupying a responsible official position in relation to the operation of the device in which the electronic document is stored and it shall satisfy the following conditions:
(a) It should identify the electronic document;
(b) It must describe the manner in which the electronic document was produced;
(c) It must furnish the particulars of the device involved in the production of that document; and
(d) The certificate must deal with the applicable conditions mentioned under S.65- B(2) of the Evidence Act;
Hence in view of and subject to, the aforesaid provisions, an Electronic Contract executed properly would have the same validity and enforceability as a Paper Contract.
Author is an advocate practicing at the High Court of Kerala. Views are personal.
[1] Tamil Nadu Organic Private Ltd v. State Bank of India, AIR 2014 Mad 103.